Apple woos Chinese users with financing plan

Consumers can pay the $850 price tag for an iPhone in 12 to 24 instalments, as Apple chases market share

Apple has been cultivating stronger ties with Chinese carriers in a bid to boost market share for its iDevices, but there is still a price barrier for many consumers, especially as operators are getting less happy to pay hefty subsidies. The vendor's eagerness to improve its Chinese position, which has slipped recently against market leader Samsung and local suppliers, is seen in its latest move, to offer instalment payments on iPhones and iPads.

Apple will now allow customers to pay CNY300 ($48) or more upfront and then spread the rest of the cost over 12 months interest-free. For longer payment terms, interest charges will apply - 6.5% for 18 months and 8.5% for 24 months. The plans are supported by the the Merchants Bank credit card provider.

Such strategies could be powerful in a country where the iPhone 5's prices start at CNY5288 ($850) - equivalent to about six weeks' pay for the average urban worker - and the iPad at CNY3688. Apple's operator partners, China Unicom and China Telecom, do subsidize the iPhone for contract users, but the majority of users are on prepaid deals, and China Mobile - the largest cellco, which Apple CEO Tim Cook was in the country last week to woo - has publicly expressed doubts about the business model because of the high cost of subsidies.

Premium device costs not only squeeze market share, when Apple is up against rivals with a wider variety of price points, but also encourage the grey market, already a major source of smuggled or counterfeit iDevices in China. Many operators are starting to offer instalment plans to reduce their reliance on subsidies and grow their prepaid bases, and vendors will see the attraction of this approach too. In Apple's case, it allows it to retain the high price, and associated brand value, of its products while still making it easier for people on moderate incomes to buy. Later in the year, many expect the vendor to launch a lower cost 'iPhone mini' to penetrate more deeply into emerging economies.

"There is an enormous midrange consumer market that they are not tapping into," Mark Natkin of Beijing-based Marbridge Consulting told Bloomberg. "They're trying to figure out how to make products more accessible to that market segment. This is a good step in that direction." While financing is a traditional route to extend the reach of a premium product once the high income consumers are saturated, it is unusual in China and Apple will be an early mover in consumer credit there.

Apple actually already offers customers financing options in some other markets, notably Brazil, Singapore and, in a limited time offer, the US. Users of the online store in Brazil can pay in 12 instalments with American Express, MasterCard or Visa, and in Singapore, there is a 12-month interest-free plan on purchases of at least S$668 ($545) with a Citibank credit card.